When the safety net fails

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: all, relying on robust supervision of banks, and the discrimination of depositors. In both countries, as in America, supervisors have powers to step in long before a bank defaults and to appoint an administrator.

Switzerland, a small country that is home to two global banks, has a capped deposit-insurance scheme—a maximum of SFr4 billion ($4 billion) for any bank that goes bust. Only deposits within Switzerland are covered. The European directive does not give EU members such discretion. Nor does EU bank regulation allow for early intervention. Talk of setting up a pan-European FDIC has not got much official support. There are too many physical and philosophical differences between member states, and it would be expensive, says an EU expert. The FDIC has resources of around $52 billion. Pre-funded schemes in the EU total a mere euro13 billion.

It is a popular fallacy, however, that a deposit-insurance scheme can stem every banking crisis. The presence of a safety net is meant to give people enough confidence not to start a run in the first place. If they do, even the best-funded scheme may be insufficient to stop it. In that case, it is up to the government to decide whether the bank is worth saving. If it is, the more back-up it provides, the better.